Murkowski gas advisor questions Palin strategy

Van Meurs says state on wrong track with open competition plan

Posted: Sunday, July 22, 2007

By PAT FORGEYJUNEAU EMPIRE

Former Gov. Frank Murkowski's top oil and gas advisor says he fears a gas pipeline won't be built under the Alaska Gasline Inducement Act, and that a combination of rising costs and a flawed approach will likely delay the crucial project for many years.

"At this point in time, there's a real question whether the project is economic to begin with," said Pedro Van Meurs, an international oil and gas industry consultant who guided the Murkowski team's negotiating strategy.

Gov. Sarah Palin recently began seeking out companies interested in building a natural gas pipeline to develop Alaska's vast North Slope gas resources under the Alaska Gasline Inducement Act.

Earlier this month, the Palin administration issued a request for applications from companies hoping to build the multibillion-dollar gas pipeline to transport gas south to market.

Palin rejected the Murkowksi/Van Meurs strategy of negotiating only with the current North Slope oil producers Exxon Mobil, BP and ConocoPhillips, who also hold rights to much of the known natural gas there. Her Alaska Gasline Inducement Act opens the competition to build the line to all comers.

The central theme of Palin's AGIA proposal is an open competition allowing the producers, independent pipeline companies or anyone else to put forward a proposal to win a state license to build the pipeline and win the state inducements.

Van Meurs said she's on the wrong track.

"What the governor is doing, from an international perspective, is kind of out of sync with reality," he said.

Among Van Meurs biggest fears: He thinks only the major North Slope producers can successfully finance and build the pipeline.

"For this kind of deal to proceed, the owners of the gas have to be a positive partner in this," he said.

House Speaker John Harris, R-Valdez, said it didn't matter if Murkowski's overall gas pipeline contract was better, because it couldn't get through the Alaska Legislature.

He said he voted for Palin's AGIA because it is the new governor's turn to try to get her deal through.

"I voted for AGIA to support the governor and give this process an opportunity," he said. "The public elected the governor to get this process moving."

Current House Democratic Leader Beth Kerttula, D-Juneau, a former oil and gas attorney with the Alaska Department of Law, said she thinks Palin is on the right track.

"I think a third party pipeline is possible. It all depends on what the terms are," she said.

"Breaking up the monopolistic hold on the gas and oil in some ways might be very good," she said.

The producers raised strenuous objections to Palin's proposal, but administration officials said they expected third parties, such as the Alaska Gasline Port Authority, or independent pipeline companies, such as Mid-American Energy, to submit applications.

Van Meurs said it was unlikely one of those parties could build the pipeline.

"The problem is they don't have the gas," he said. "You can't build the pipeline if you don't have anybody to put gas in it."

Palin's Department of Natural Resources Commissioner Tom Irwin held the same job under Murkowski, but was fired when he took a position counter to Van Meurs during the negotiations. He was brought back by Palin after she defeated Murkowski in the Republican primary and took office last December. He has been advocating an open process.

Irwin didn't return phone calls Thursday or Friday, but internal Murkowski memos obtained by House Democrats earlier this year show Irwin then appeared to fight Van Meurs' decision to negotiate only with the producers.

Irwin said then he objected to Van Meurs dismissing third-party pipeline companies' proposals as uneconomic without even doing the modeling necessary to find out for sure.

"Pedro is buying the producers' argument without validating it," Irwin wrote in a memo to Murkowski Chief of Staff Jim Clark.

Van Meurs said that with construction costs rapidly rising, he's not even sure an Alaska gas pipeline project is profitable for anyone. Cost overruns at the Mackenzie Delta project in northern Canada suggests that last year's cost estimates may be low, he said.

"What used to be a $20 billion pipeline is now a $40 billion pipeline," he said.

Sen. Gene Therriault, R-North Pole, said no one has a current cost estimate, but the applications Palin is soliciting will indicate what companies think it will cost. Also, he said, gas prices are now well above what they were just a few years ago.

"AGIA is going to put some real numbers before us to take a look at," he said. "It could be that it is still very, very profitable."